Homeowners wary of locking in heating oil prices

Friday

Sep 28, 2007 at 12:01 AMSep 28, 2007 at 6:48 AM

Fewer homeowners are signing up for fixed-rate or capped-price contracts for heating oil, according to local dealers. Last year, many customers were hurt after hedging their bets before a warmer-than-expected winter kept supplies plentiful.

Greg Turner

"Locking in" is not looking so good to many heating oil burners these days.

Fewer homeowners are signing up for fixed-rate or capped-price contracts for heating oil, according to local dealers. Last year, many customers were hurt after hedging their bets before a warmer-than-expected winter kept supplies plentiful.

"The interest in (price contracts) is less this year because people are concerned about locking in and prices falling," said Michael Ferrante, president of the Massachusetts Oilheat Council, a trade association based in Wellesley.

"It's worked well over the years, but last year they became troublesome," he said. "There were a lot of consumer concerns about wanting to get out of those contracts, and dealers had to deal with a rash of them."

Oil dealers' fixed-price programs keep the rate the same through the winter, whether the market goes up or down. Capped-price contracts, which come with a premium of 15 cents per gallon, on average, according to Ferrante, have an upper limit so customers benefit if prices go down.

Ferrante attended a regional dealers in Springfield yesterday during which retail heating oil company owners and managers reported "less activity" with contracts.

Tom Carey, owner of Jamie Oil Co. Inc. in Ashland, said 80 percent of his customers locked in three years ago. That figure fell to 50 percent last year and to 30 percent for this season.

"Fewer dealers are offering fixed rates at this time and fewer customers are willing to lock in," he said. "It's very unrealistic to expect that on any one day you can lock in to one price and that price is going to be the low price for the season."

Carey said some customers were shocked last year. "They learned there were no safe bets," he said. "People who locked in in July and August (found) out come September and October that they were 50 cents above the market."

Heating oil prices are very high now, but they could drop significantly before winter sets in or go higher still if there is a disruption in crude oil supplies, according to market analysts. Trading on the futures market changes prices every day, and retailers' follow suit with frequent price adjustments.

The latest survey of Massachusetts oil dealers by the state Division of Energy Resources found an average price of $2.67, a record high, on Sept. 18. That is 18 cents higher than a year ago and 6 cents higher than the period of price spikes following Hurricane Katrina in 2005.

Earlier this month, federal government forecasters said temperatures in much of the Northeast - the world's largest heating oil market - will be above normal for the upcoming heating season. The Energy Information Agency projected that residential heating oil prices in the region will jump more than 11 percent to $2.78 a gallon on average, compared to a year ago.

"Usually people lock in in August and sometimes in September because that's when retailer's ask you to," said Sarah Emerson, director of petroleum at Energy Security Analysis Inc. in Wakefield. "This year, you have a situation where people who haven't locked in yet are a little bit out of luck."

Emerson, who has yet to lock in a heating oil price herself, said "it's a tough call" to make right now. "It has a lot to do with your tolerance for price volatility.

"I kind of feel like we got our price hike already but I can't say for sure it will go a little higher," she said. "We might have a little retreat in late October or early November."

Ferrante said the drop in lock-in contracts isn't a major drag on oil retailers' revenue but they can lose business if more customers shop around all winter long, or decide to make the jump to natural gas or other heating sources.

"What concerns oil-heat dealers about this kind of pricing is consumers migrating to other dealers and not being loyal," he said.

Bob Keough, a spokesman for the state Division of Energy Resources, said there are currently no signs that heating oil prices will fall, and natural gas rates are expected to drop only slightly from a year ago.

"We are encouraging consumers, as usual, to take advantage of energy efficiency programs," he said. "This is a good time to get up to date on your (heating) systems and windows."